Beating broad benchmarks such as the S&P 500 is difficult. Many professional market participants fail to do so. This difficulty underscores why so many retail investors simply opt for bland broad-market funds. Of course, there’s a big difference between “difficult” and “impossible.” With a little bit of homework, market participants can unearth strategies with the potential to beat the broader market. Moat stocks are one such strategy. The VanEck Morningstar Wide Moat ETF (MOAT) is an example of an exchange traded fund that has the potential to beat the market over the long haul.
It’s already proven as much. MOAT turns 12 years old in April and in the ETF’s first 11 years on the market, it’s up on the S&P 500, regularly outperforming the benchmark equity gauge on an annual basis. Embracing wide moat stocks trading at attractive valuations seems a winning strategy.
Why MOAT Can Be Magnificent
One year isn’t long in investing, but it’s worth acknowledging that over the past 12 months the Morningstar Wide Moat Focus Index – MOAT’s index – is handily beating broad collections of narrow and no moat equities. For investors considering MOAT as a core, long-term holding, the longer-ranging data are compelling, too.
“Over the past 20 years, the index has risen 1,070.81%, gaining twice as much as the US Market Index, which rose 547.50%. Undervalued wide-moat stocks also outpaced the overall group of wide-moat stocks during this period,” noted Morningstar analyst Bella Albrecht.
Additionally, it’s easy to define what a wide moat means, confirming investors got a clean, straight-forward approach with MOAT. In simple terms, a wide moat implies a company has a high level of competitive advantage over rivals and competitors face elevated barriers to entry to make inroads against an entrenched wide moat incumbent. There are other perks associated with wide moat investing.
“Stocks with moats have also tended to see smaller price swings than no-moat stocks. As measured by standard deviation—a common barometer for volatility—over the past five-, 10-, and 15-year periods, wide-moat stocks have had lower volatility than narrow-moat stocks and the broader equity market. No-moat stocks have shown the highest volatility,” added Albrecht.
Interestingly, MOAT can also serve as a solid augment in portfolios that are heavy on the magnificent seven stocks. As Morningstar noted, the top 11 performers in the Wide Moat Focus Index over the past half-decade include just two magnificent members – Microsoft (MSFT) and Meta Platforms (META).
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